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HMRC internal manual

Company Taxation Manual

Corporation Tax: loss-buying: change in ownership


Definition of change in ownership

For the purposes of CTA10/S673 the rules defining ‘change in ownership’ are set out in CTA10/S719. Broadly, there is a change in ownership of a company under CTA10/S719 where more than half of its ordinary share capital changes hands. In cases to which CTA10/S719 applies, it is normally clear that a change of ownership has occurred.

CTA10/S719 (1) defines change in ownership in three ways.

  1. There is a change in ownership if a single person acquires more than half the ordinary share capital of a company.
  2. There is a change in ownership if two or more persons each acquire 5 per cent or more of the ordinary share capital of a company, and those holdings together amount to more than half of the company’s ordinary share capital. The 5 per cent threshold means there is no need to examine small shareholdings, particularly those of public companies.
It is possible for more than half of a company's shares to change hands and yet not trigger a change of ownership if the shares are purchased by a number of unconnected persons, each of whom acquires a holding of less than 5 per cent.  
    3. There is change of ownership if two or more persons each acquire a holding of the ordinary share capital of a company, and those holdings together amount to more than half of the company's ordinary share capital. But for this test holdings of less than 5 per cent are disregarded unless it adds to an existing holding and the further acquisition takes the total holding above the 5 per cent threshold.

For the purposes of tests 2 and 3 holdings of connected persons (as defined in CTA10/S1122) are aggregated (CTA10/S720(4)).

Application of CTA10/S719 definition to other legislation

Other anti-avoidance legislation uses the CTA10/S719 definition of a change in ownership of a company as well as CTA10/S673:

  • CTA10/S710, CTA10/S713 : unpaid or postponed CT .
  • CTA10/S674(1): ‘profit-buying’ (CTM06450).
  • CTA10/S677 and CTA10/S692: management expenses buying (CTM08700+).
  • CTA10/S704: Property loss-buying (PIM4250).
  • CTA10/S681: non-trading losses on intangible fixed assets.
  • ACT (CTM20300, CTM81225 and CTM81230). Statutory Instrument SI1999/358 (the ‘shadow ACT’ regulations) in relation to changes of ownership on or after 6 April 1999 (CTM18750 - CTM18770).


For the purposes of the CTA10/S719 ‘change in ownership’ test:

  • Shares which are inherited or received as an unsolicited gift do not count as acquisitions.
  • There is no change of ownership if a person or combination of persons acquire exactly 50 per cent of a company’s ordinary share capital; it must be more than half.
  • ‘Ownership’ and ‘acquisition’ relate to beneficial ownership of shares (CTM06030) CTA10/S728) empowers officers to obtain information about the beneficial ownership of shares and securities held, for example, by nominees.
  • Shares bought under option or similar contracts are regarded as having been acquired at the time the option was granted, not when it was exercised (CTA10/S725 (4), but this does not apply to CTA10/S710 or CTA10/S713).
  • Where the spreading of share purchases would otherwise allow a series of acquisitions to fall outside CTA10/S719, CTA10/S720(2) provides a three-year period of comparison over which to establish a change in ownership.
  • A person can be treated as having acquired at the later date whatever they did not hold at the earlier date, no matter what acquisitions and disposals have taken place in the meantime. However, if there has been a reorganisation of share capital, for example a bonus issue, the comparison is made in terms of percentage holdings of the total ordinary share capital at the respective times (CTA10/S720 (3)). The second of the two dates selected for the purposes of this comparison becomes the date of change in ownership.
  • It is not necessary to look at the same three year period for a change of ownership and a major change in the nature or conduct of a trade - any three year period can be taken for the purposes of establishing a major change in the nature or conduct of a trade as long as it includes the date of the change in ownership under CTA10/S719.

CTA10/S721 - ‘Funny’ shares, and extraordinary rights and powers

CTA10/S719 uses the standard definition of ordinary share capital at CTA10/S1119.

This could be exploited. For example, a company could issue a large number of ‘funny’ shares. These shares may have little or no real value but nevertheless rank as ordinary shares. Their nominal value can distort the ordinary share capital test in CTA10/S719.

CTA10/S721 addresses this problem. It allows other interests in a company, such as voting power attaching to shares, to be taken into account in determining whether there has been a change in ownership. CTA10/S721 is cast widely and extends to rights held by persons not registered as members of the company.